Wash Sale and Roth IRA – What You Need to Know

Scenario: You own a stock that has dropped in value. You want to sell it in your taxable account and buy it back in your Roth IRA.

Problem: This could trigger a wash sale, meaning your capital loss will not be deductible for tax purposes.

Wash Sale Rule

The IRS disallows realized capital losses if you sell a security at a loss and buy the same or a “substantially identical” security within 30 days before or after the sale.

This rule applies across all your accounts, including:

• Taxable brokerage accounts
• Your spouse’s accounts
• Tax-advantaged accounts like IRA, Roth IRA, 401k, etc.

Wash Sale with Roth IRA

If you repurchase the same security in your Roth IRA, the IRS still applies the wash sale rule, but unlike a taxable account:

❌ Your cost basis is not adjusted – typically, a wash sale rolls the disallowed loss into the cost basis of the repurchased security. Still, this adjustment does not happen in a Roth IRA. Your tax loss is permanently lost.

How to Avoid a Wash Sale?

✔ Wait 31 days after selling before repurchasing in your Roth IRA.

✔ Buy a similar but not “substantially identical” security – this strategy is easy to implement for funds.

✔ If selling an individual stock, consider buying an ETF with high exposure to that stock